Presenter: Lindsay Williams Guest(s): David Green

Lindsay Williams talks to David Green, managing director of Pace Properties, about the growing shortage of office space

LINDSAY WILLIAMS: If you walk down the street, close your eyes and chuck half-a-brick - you are going to hit an office to let sign! But apparently not, the big property trend in Johannesburg is the development of new offices. Is this really true - are the to let signs coming down? Is that creating a shortage?

DAVID GREEN: The point that we are trying to make is that there is availability of office space, but not A-grade office space. The lower grade offices are generally available throughout the city - and obviously at lower rentals - but the premier grade office space, desirable for corporate head offices, is in short supply at the moment.

LINDSAY WILLIAMS: Is this what the big corporates, companies that are going concerns, are demanding - these new age office developments?

DAVID GREEN: Precisely. Also, they require these office developments to be tailor-made for their use, and that is going to lead to a trend of buildings for specific A-grade tenants.

LINDSAY WILLIAMS: One thing I notice in Sandton over the last couple of years - very old looking buildings suddenly getting facelifts - is that also a trend, rather than the new offices built from scratch?

DAVID GREEN: Yes. I think there are a couple of reasons for that - obviously it is cheaper to renovate existing stock than to build new properties, also, those properties command very good locations within the commercial heart of Sandton. That is why they are desirable for renovation. Many of those buildings, as you correctly point out, are being renovated into A-grade office space - but many of them have shortcomings that are difficult to overcome, such as the lack of parking facilities. Many first generation Sandton buildings were constructed in the 1970s - when parking ratios were much lower, as the Council felt that most people would use public transport to reach the workplace. This hasn’t actually happened, and many of those buildings actually are limited in terms of their desirability - they are unable to provide enough onsite parking.

LINDSAY WILLIAMS: What happens to B-grade property spaces being pushed aside - the only accessories they have got being a lift that doesn’t work, and an old water dispenser? Who’s renting those?

DAVID GREEN: Those costs are borne by the tenants who occupy the building, but even those can be renovated, and upgraded into brand new working facilities.

LINDSAY WILLIAMS: Geographical locations - if a top corporate wants to build a head office from scratch where are they going to go? You have mentioned Sandton, you’ve mentioned Fourways - is Midrand still popular? Where do they go?

DAVID GREEN: Midrand is popular, but generally not for the financial organizations. Midrand would be more attractive to the distribution and warehouse operations, or food distributors. Sandton remains the dominant centre in the country for your commercial tenants. Other office locations towards the north - which would include Bryanston, Fourways and Woodmead - are also extremely popular.

LINDSAY WILLIAMS: The market - is it still buoyant?

DAVID GREEN: The market is extremely buoyant - we’ve seen very positive signs coming through. The take-up of historically vacant space - which has lingered around for many years - has certainly gained in momentum. We are seeing space being taken up across the city at a rapid rate - the only parts of the city which still have very high commercial or office vacancy rates are the CBD and Braamfontein.

LINDSAY WILLIAMS: This perceived shortage, inevitably, will mean higher prices?

DAVID GREEN: That is going to come - as this current stock is taken up, we are going to see the rental levels pushing up.

LINDSAY WILLIAMS: What sort of numbers are we talking about, in percentage terms, do you think?

DAVID GREEN: For A-grade space we are already looking at above R100 a square metre, and it’s not inconceivable to think that could rise by another 25% over the next twelve months.